Posted in Finance, Accounting and Economics Terms, Total Reads: 195
Definition: Company Owned Life Insurance (COLI)
It is a type of insurance policy taken by company on the lives of employees, with benefits payable primarily to the employer. The employees in question are considered to be vital to the company’s operations. When employer is a bank, this kind of insurance is known as Bank owned life insurance (BOLI)
This is a type of hedge against the financial cost of death of key employees or executives, the recruitment cost, the training costs of the new recruit (replacement), and other employee benefit liability. Other important advantage of COLI is that the death benefits are tax free.
Based on the Objectives company owned life insurance can be structured in many ways. Most common of them is the to fund certain type of non-qualified plans, like split-dollar life insurance policy which allows company to regain its premium expenses into the policy by making itself as the beneficiary for the amount of premium paid, whereas the remainder amount goes to the family of the employee insured. In other type of COLI, key employee is insured and the insurance company pays the employer a death benefit when the key employee dies, and buy-sell agreements which fund buyout of a deceased partner or the owner of the business.
COLI is fundamentally different from group life insurance policy wherein most or all the employees of a company are insured.